Requirements of maintaining ECR, BMR abolished: Rating requirements for securities brokers simplified

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has simplified the rating requirements for securities brokers and abolished requirements of maintaining the specific Entity Credit Rating (ECR) and Broker Management Rating (BMR).

In this connection, the SECP issued an SRO 361 (I)/2023 on Tuesday to amend the Public Offering (Regulated Securities Activities Licensing) Regulations, 2017.

The aim of these amendments is to simplify the rating requirements for securities brokers in order to promote efficiency in the capital market.

According to the details of the decision, in order to further rationalise the rating requirements for securities brokers, it is proposed to move towards a single rating regime, as planned, based on BMR. The brokers shall be required to obtain the prescribed Broker Fiduciary Rating (BFR) upon expiration of their existing ECR or BMR rating as appropriate, or within six months from the date of implementation of these amendments, whichever comes later. Hence, their existing ECR and BMR ratings shall remain valid until expiration.

Under the previous regulatory framework, securities brokers may be required to obtain multiple ratings such as the Entity Credit Rating (ECR) and Broker Management Rating (BMR) to perform various activities. The concept of Broker Fiduciary Rating (BFR) was introduced with the aim of having a single ratings regime for securities brokers through the phase-wise implementation of the BFR.

The purpose of the current amendments is to give effect to the planned regime by abolishing the requirement for securities brokers to maintain a specific ECR or BMR rating, and prescribing the minimum BFR to be maintained, where applicable. This requires introducing amendments in the Securities Brokers (Licensing and Operations) Regulations, 2016 (“Brokers Licensing Regulations”) and the Public Offering (Regulated Securities Activities Licensing) Regulations, 2017 (“Public Offering Licensing Regulations”).

As per revised amendments, the minimum rating requirement for Trading and Clearing (TC) brokers under Brokers Licensing Regulations shall be changed from ECR of A- to BFR 2. The minimum BFR required to be maintained by Trading & Self-Clearing (TSC) brokers under Brokers Licensing Regulations shall be specified as BFR 3.

The BFR required to be maintained by brokers applying for the license of Consultant to Issue (CTI) under Public Offering Licensing Regulations shall be specified as BFR 3+.

The brokers applying for the license of Underwriter are presently required to obtain a minimum ECR of A- or A2 under Public Offering Licensing Regulations. They may alternatively maintain a minimum of BFR 3++. All requirements for brokers to obtain BMR shall be abolished, sources added.

Under the SRO 361 (I)/2023, in the case of a securities broker, it has obtained a minimum broker fiduciary rating of BFR 3+ from a credit rating company licensed by the commission: Provided that all existing securities brokers licensed as consultant to the Issue shall obtain Broker Fiduciary Rating within such time as may be specified by the commission, it added.

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